184 FINANCE considerable temporary loss, for the capital of the debt, instead of being reduced, was increased by three millions, and the temporary annuities were converted into a perpetual stock. But, on the other hand, the state secured a reduc tion of interest within six years, and could, if the state of the money market proved favourable, reduce their rate of interest at an earlier date, or if the revenue exceeded the expenditure could bring the machinery of the sinking fund into operation. In 1727 three-fifths of the public debt was South Sea stock. In 1724 the rate of interest had fallen so much that the bank, on a revision of its bargain with the Government, agreed to accept 4 per cent, instead of 5 on its new stock, the old rate of 6 per cent, remaining on its original stock. In 1726 it was found possible to borrow at 3 per cent., and a small stock was raised at this rate. In 1727 the land tax, which had been at two shillings for five years, was raised to four. Those customs and excise duties which had now bsen made permanent, and were reckoned on an average at 30 per cent, of the value of duty-paying and excisable articles, now yielded, with the malt tax, about four and a half millions, or twice as much as the land tax at four shillings in the pound. In 1732-3 the land tax was reduced to a shilling in the pound in order to conciliate the landed interest, the salt taxes were reimposed, and the deficiencies of the revenue were made up from the receipts of the sinking fund, which now amounted to more than a million annually, and by which reductions were made from time to time in the public debt to the amount of more than six millions in the twelve years between 1727 and 1739. As Walpole had been designated the father of the sinking fund, his policy was severely, perhaps sincerely, criticized by the opposition. But while it was certain that the ministers could count on a great majority for the financial scheme which he proposed, it was not equally certain that he could reckon on support except by reducing the land tax, an impost which was sensibly felt by the landowners, and was correspondingly distasteful. The land tax re mained at two shillings in the pound from 1733 to 1739. In other words, direct taxation remained odious, and indirect taxation became familiar. In 1737 the rate of interest on public securities was less than 3 per cent., for the 3 per cent, stocks were worth 107 in June. This is at about the middle of that remarkable series of years in which the prices of grain were singularly low, a set of facts which is characteristic also of the first half of the 15th century. The cheapness was undoubtedly due in great measure to a succession of abundant harvests, and to the rapid growth of agricultural skill. But it is also to be ascribed in some degree to the increasing dearness of the precious metals, especially silver, and it is likely, for economical reasons which would not be in place to allege here, that a period in which the precious metals are dear will be accompanied by persistently low rates of interest. It is manifest that, at the present time, gold is rapidly increasing in value, and that a low rate of interest has accompanied this fact, as it will in all likelihood continue. The House of Commons resolved, in view of the high prices to which public securities had risen, that the rate of interest on all Government stocks which were redeemable should be reduced to 3 per cent. A bill was brought forward embodying this resolution, and was read twice, but lost in the course of the session. It appears that the plan was frustrated in deference to the monied interest. That it caused some alarm to the holders of redeemable stocks is proved by the fact that, when the three per cents, stood at 105, 3s. 8d., the four per cents, were at 113 only. There is one incident in the history of Walpole s financial projects which must be referred to. In 1733 this minister brought forward his famous excise scheme. The payment of customs duties by the importers was obligatory on the landing of such articles as were liable to the tax, or the importer, if he desired delay, was compelled to enter into a bond with sufficient securities for the payment of the impost. The inconveniences of the system were obvious. If the importer were in narrow circumstances, he was fre quently obliged to realize the value of his goods by immediate sales, when the market price was low already, and was thus deprived of one advantage which is charac teristic of capital, that it enables the possessor of it to wait for favourable markets. It inflicted the maximum loss on the consumer, to whom the tax was of course transferred, and a minimum advantage to the Government ; for of course the trader s profit was derived from capital advanced for payment of duty, estimated by the time intervening between the importation and the sale. It tended towards, limiting competition in foreign products, for the wealthier merchants had nearly a monopoly of sale in articles on which considerable customs duties were charged, owing to the necessity of finding the tax at once. A further assist ance was given to such merchants by the rule under which the importer who paid his tax promptly was allowed a bonus of 10 per cent, on the amount of the tax. It opened the way for frauds on the revenue, for it encouraged smuggling, and assisted the dishonest exporter of foreign produce in obtaining a fraudulent drawback. It checked the carrying trade, narrowed consumption, and impaired the revenue. The reform which Walpole contemplated was to extend to foreign products imported into Great Britain that system which was already practised with such articles as were liable to the internal duties of excise, i.e., to permit the storage of foreign goods in bonded warehouses on the payment of a trifling landing duty. Thus tobacco the experiment was to be tried with tobacco and wine at first was liable to 6|d. per pound. Walpole proposed to reduce the tax to- 4|d., to levy |d. on importation and deposit in the ware house, the import duty being payable as part of the hereditary excise, but being repaid on exportation, and to delay the payment of the 4d. till such time as the owner of the goods might wish to dispose of it to the dealer for home consumption. In this way Walpole contemplated that a great ease would be afforded to the fair trader, and that frauds on the revenue an invariable source of loss to the honest merchant would be obviated. It is clear that Walpole anticipated that the revenue would gain all from the check to smuggling and factitious drawbacks which it lost in reducing the duty. It was unfortunate for Walpole s project that he brought it forward at a time when he had, in deference to the clamour of the landed interest, reduced the land tax to a shilling in the pound, and suspended the operation of the sinking fund. It is true that the plan was not wrecked on these issues, though they must have been present to the minds of many among those who resisted it. It was in vain that Walpole most accurately predicted, as the result of his reform, " that it would make London a free port, and by consequence the market of the world." The great merchants, who had a monopoly of importation ; the smugglers who, in that age of corruption, found means to- make themselves a parliamentary power ; the public, which loathed the excise as an inquisitorial system, begun in the old days of Cromwell s military usurpation, continued in order to sustain the foreign policy which the Government of the Revolution had prosecuted, and extended in order to enrich foreign favourites and to bribe the servants of the state ; and the patriots, as the opposition called themselves, eager to use every chance against Walpole, even when he was in the right, because they had so pertinaciously asserted" that he was always in the wrong, united to defeat the-
